In praise of Apple’s IDFA changes

I wish it was Monday already

Apr 23, 2021

Earlier this week I got my first vaccine shot at the Javits Center in New York. It was time to cut through the fog and return to planet earth after more than a year of damndemic. Time to get back to work.

I must have been at the Javits Center a million times before. Over the past 15 years I’ve attended toyfairs, conferences on kids & games, esports conventions, and a slew of other events. But never before had I seen it stripped so bare.

You enter the usual way: there’s a few desks to check you are at the right place at the right time, after which you’re sent to follow almost a mile of arrows and instructions. Follow the yellow line. Go left. Go to table 76. What’s your date of birth?

And as you enter deeper into the facility you get a sense of the scale things. There’s a sign that reads: “Today we’re scheduled to vaccinate 4,980 New Yorkers.” But despite the grandeur and immense effort that people are making to get this done, there are no frills. No flashy signs. No entertaining booth people trying to catch your eye.

The highlight of the experience is, however, not receiving the shot itself. I had anticipated a sense of relief and joy. Sure enough that happened. But here’s what I didn’t know: immediately afterwards you’re asked to sit in a holding area for 15 minutes. You’re told it’s to make sure everything is okay. But it is then that it really hits you what just happened. One shot down; one to go. After more than a year of delayed gratification and keeping your peace, the stress begins to lose its grip and a rush of emotions starts to overwhelm you. Wait, does this mean I can go traveling again? I can go see my friends and family? Hug people? It’ll be possible again to draw on the inspiration of others?

The realization that caught me was how starved I’ve been to get back to the real. All this time spent online and on screen has been a fantastic journey and an expansion of available experiences. But what had been missing was the counterweight of real life.

I’ve missed you all and can’t wait to hang out again. The Metaverse can wait.

On to this week’s update.

NEWS

Earnings season is upon us

Here’s my most recent earnings calendar for the major game companies that might be worth your time. Feel free to suggest updates and changes.

CD Projekt releases annual report

Despite all that egg on its face, CD Projekt did manage to report some impressive numbers. Recently released Cyberpunk 2077 sold 13.7 million copies by the end of 2020. Perhaps due to the rejuvenated interest in the firm, its previous hit game, The Witcher 3, saw its second best year in history last year selling over 30 million units. The firm announced it will release next-gen console editions for both titles in the second half of 2021.

Overall CD Projekt earned $565 million in 2020, up +310% from $138 million the year before, and split between 88.6% in game sales and 11.4% earnings from its digital storefront GOG. Outside of the lumpy cycle that follows a blockbuster release, the company makes about one-third of revenues from selling through GOG, which caters to markets like the US and Germany. Beyond its own titles, the company referenced Baldur’s Gate 3, Metal Gear Solid, Castlevania & Contra, and Dishonored as other notable titles that drove revenues.

CD Projekt strikes me as the poster child for a creative industry that after years of operating in relative obscurity suddenly finds itself stumbling onto a brightly-lit global stage where it faces intense scrutiny. If its IP and its corporate image can survive the coming year, the Polish game maker has the potential to become an even bigger rival to the incumbent triple A publishers than it already is.

Amazon Gaming suffers another setback

When Tencent acquired Leyou Technologies in December, none of the big brains between the Chinese giant and Amazon were able to work out a deal that would allow the latter to continue development on a project based on the Lord of the Rings franchise. So reports Bloomberg.

Kaplan leaves Activision Blizzard

I recall watching his talk at DICE a few years ago when he spoke of how Overwatch aimed to be an inclusive shooter than deviated from the tried-and-true level design found in shooters. One of the things that stuck with me was Kaplan’s admission of having borrowed from middle-eastern architecture. Rather than framing it as an old desert-like scene, they went with a more utopian, futuristic setting. It was an aesthetic choice so powerful and obvious that you wonder why no one had thought of it before. Kaplan’s departure will be a loss for Activision Blizzard and its fans, especially now that he leaves a vacuum around Overwatch 2.

Netflix lukewarm on game development

Despite owning plenty of worthwhile IP and having previously explored several projects on the intersection between watching and playing, Netflix’ leadership admitted it has no big plans for gaming. During its most recent earnings call, CEO Hastings indicated that the firm is not pursuing a great “second act” similar to Amazon’s push into adjacent categories. He does, however, expect to expand into licensing and merchandising across a broad range of categories, stating the firm has “a lot to do in terms of different types of entertainment.”

BIG READ: In praise of Apple’s IDFA changes

If I had to make one observation about the state of mobile gaming I’d say that Apple’s changes to the IDFA policy changes can’t come soon enough. And now it is confirmed that it’ll all start next week when it rolls out its new operating system for its iPhones.

Can’t wait.

First of all, it’s been dragging on forever and the increasing levels of panic and drama around it are getting ridiculous. According to one CEO,

“It's like an atomic bomb … People are going to have to reinvent how they do the job of marketing — well, not reinvent but go back to where it was 10 years ago."

Give me a break.

Why would mobile gaming be any different than literally every entertainment market in the history of the world and not anticipate a wholesale change in policy that transfers wealth away from content creators to the platform holder? Especially in a high margin category like mobile entertainment where there’s really only two available platforms and about a zillion game makers, it’s amazing it took as long as it has.

Second, maybe it’s just me, or maybe the entire conversation about mobile gaming has stopped being about creativity and cool new game design. What drives revenue today is the ability to identify specific types of users and mastering the underlying economics of converting those users to spenders.

Case in point: this week we saw the IPO for AppLovin. Valued at $29 billion at the start, the firm generated $740 million (about 51% of total 2020 revenues) from its gaming business. Yet it insists that it is not, in fact, a game company. Oooookay. What makes AppLovin successful is its uncanny ability to slosh users around between its different titles. It spent “a large percentage” of the $628 million its 2020 sales and marketing budget on user acquisition and engagement. By comparison, AppLovin’s budget for research and development totaled $168 million and goes largely toward the improvement of its core ad optimization technologies. Games barely receive mention.

Nevertheless, the firm is a success story in its own right. But this is not a game company that got good at marketing and distribution. It is a mobile ad optimization company that acquired $1 billion worth of game studios.

Starting next week the market landscape for companies like AppLovin and others is about to change dramatically. Succinctly, the changes that Apple is expected to make next week to its IDFA policies are going to make it more difficult for marketers to target audiences. At its core sits the change to users having to opt-in to app makers tracking their data rather than surrendering this information by default.

Apple says it is doing so to protect the data and privacy of its users. Meh. Partially. Maybe. Here’s another read: it is deliberately increasing the opacity of its app marketplace in a way that forces developers to spend money on search results which will transfer a lot of the budgets currently spent on user acquisition firms and technology back to, you guessed it, Apple. It is claiming a bigger cut.

That is bad for Facebook and Google, too, which rely on ad revenue for their earnings. And the recently emerged hyper casual category is likely taking a hit as well, because of their inability to monetize in any other way than ads.

After years of spectacular growth, mobile gaming has become an industry in which the need to solve discovery issues exceeds the need to entertain. Historically, it is somewhat of a common law in all entertainment markets: generally speaking, it is not the best artists and creatives that find the greatest commercial success. It is the ones that manage to plug into the biggest distribution hubs. Some of the best music, films, and games go unplayed.

Limiting ad tech superpowers forces game makers to rely more on intellectual property and cross-platform development. Several of the big dogs already acknowledged this. Tencent is setting up triple A development studios across North America. And Activision Blizzard is rolling out existing IP on mobile. If you don’t want to depend too much on a single platform, you should develop for others, too.

Most of this won’t impact big companies. Their ability to cross-promote across different platforms beyond mobile and rely on the broad strength of their franchises will largely insulate them from much of the changes. But it will definitely make life harder for smaller and medium-sized mobile game makers. An increase in barriers and a more costly connection between content and consumers means that those with smaller warchests are likely to fall behind further. Apple’s anticipated alterations to the IDFA will largely disadvantage the creative middle class.

That’s a shame, for sure. But, again, it was also entirely predictable and a lot of that cheap capital that got us here is going to evaporate. To me that means fewer fast-following clones, for one. Let’s be honest: there are so many garbage apps on mobile. Low entry barriers and development costs have allowed them to bloom like a fungus. Is that really in the interest of the player? By raising the stakes for everyone involved, fewer of these bogus apps will see the light of day. I think that’s a good thing.

Second, an important reason we got to where we are today is the by-and-large reliance on free-to-play monetization. In an ocean of players that don’t spend, the emphasis has been to push conversion to the front. In pursuit of all this mobile growth, many firms have willfully assigned themselves to the whims of its economics. You knew this going in.

Look, I recognize of course that in the short term a reduced ability to target users will negatively impact companies and jobs. And while I’m sure everyone is in this racket in pursuit of a sublime creative vision, entertainment is and always was a high-risk, high reward business. Just ask how film makers, actors, dancers, singers, performers, and athletes have been doing this past year.

By acting in its own self-interest the dominant mobile gaming platform is inadvertently also doing its audience a favor. I’m totally on board with the broader narrative of ‘Bad Apple.’ Tim Cook didn’t come to play. But here perhaps my own and Apple’s interests are aligned. I want to play cool, novel, innovative games; not what some over-produced marketing algorithm calculated would extract the most money from me. Studios, not spreadsheets, should sit at the center.